It's important to help your child plan for their financial future whether he or she is graduating from high school or college. You want to set a strong foundation for long-term financial stability by broadening your scope of financial literacy. Our Brooklyn asset protection attorney mentions that sharing the following tips can help prepare them.
Budgeting Expectations and Boundaries
Nearly one-third of young adults don’t have a budget because they believe they are too poor to budget or don’t make enough money to need one. Without a budget, they create a huge stumbling block for financial success. A budget can help control where the money goes instead of wondering where it goes.
Before creating a budget, talk through short- and long-term goals like home ownership or starting a business or a family, writing down the three or four most significant accomplishments to achieve in the next five to ten years.
Next, narrow the focus to two things to accomplish regarding finances within the next year such as:
- Pay off debt to improve your credit score
- Start a new career
- Secure a credit card in your name
- Build an emergency fund
Then further narrow the focus on what to accomplish next month. It might be saving a certain amount of cash or not using credit cards for thirty days.
Set Up a Budget
Setting up a budget requires gathering paperwork like bank statements, pay stubs, and investment accounts. From this data, calculate expected monthly income and typical monthly expenses. The hope is that monthly income exceeds monthly expenditures, including rent, utilities, food, and entertainment. If not, it’s time to cut costs. Some expenses are variable. Find a way to normalize increases in monthly expenditures with extra savings throughout the year.
Track the Budget
This step is where many people attempting to budget tend to fail because they don’t follow the budget they created. Track your daily transactions and subtract them from the proper budget category. Monitor expenditures using apps, spreadsheets, or pen and paper. Discuss what will work best to stay disciplined, as living within a budget is the first step to building financial security.
Parents can help their young adult children by teaching them to set goals, create a budget, and manage their finances. It’s tempting but essential not to routinely bail them out financially if they aren’t following their budget. If you must provide financial assistance, make it temporary. Learning to save and live within or beneath their means in these early adult years is crucial to success and teaches financial responsibility.
Encourage children not to take the summer off after college. In a competitive world, losing time in the business world equates to lost opportunities. There’s no such thing as a perfect job to wait for, and the sooner they begin building a resume, the better the chances of finding that dream position.
Estate Planning Attorneys
An estate planning attorney can play a valuable role in assisting parents of graduates in planning for their financial future. They can help your adult child understand long-term financial goals like starting a business, saving for retirement, or buying property. They can help set attainable goals and develop a plan to achieve them.
Start Investing Early
Long-term financial growth typically begins with a modest initial investment when young. Time is on your graduate’s side to allow compound interest and savvy investing to accumulate wealth. Encourage them to take advantage of employer-sponsored retirement plans, such as 401(k) or 403(b), especially if the employer offers matching contributions. Additionally, explore individual retirement accounts (IRAs) or other investment vehicles suited to their goals and risk tolerance.
Consider Insurance Coverage
Evaluate insurance needs, such as health insurance, renters or homeowners insurance, and vehicle insurance. Even though they’re young, look into disability and life insurance to protect themselves and their loved ones from unexpected life events. Typically, the healthier and younger you are, the lower the premium cost. Many policies are flexible to regain premium payments in the future if you no longer require the policy.
Create an Estate Plan Early
Your child may think estate planning is unnecessary. However, if they start a family, creating a will is critical to distribute assets and personal property to loved ones and can appoint guardians for minor children.
A living will is critical since accidents and incapacitation can happen at any age. It outlines your preferences for medical treatment if you can’t communicate your wishes and how long you want to persist in a vegetative state.
They can modify or completely rewrite their wills as they age and circumstances change.
For your child to receive financial messages without sounding like another money lecture, stick to the basics, such as:
- Basic budget and goal-setting
- Now versus later thinking
- Delayed gratification and tradeoff requirements necessary to attain goals
- Establishing and maintaining good credit
- Saving versus investing and the importance of starting early
- Big picture planning in financial life management
Once they understand the importance of legal and financial planning, they’re ready for the next steps in financial responsibility and setting realistic expectations around money.
Fostering Financial Independence
Some adult children will be more willing than others to heed parental advice on financial planning. You may want to provide some modest capital for early investment purposes. If you worry they might squander the money rather than watch it grow, your estate planning attorney can put guardrails on the gift via a trust or other legal mechanisms that limit their ability to withdraw funds.
All parents want to see their children do well in life, and a large part of their success is contingent upon achieving financial independence. Educating them early about building wealth can give them the clarity, control, and confidence they need to create a strong financial foundation that will serve them throughout their lives.